Three Hidden Canadian Small Caps with Strong Fundamentals

As the Canadian market shows signs of recovery, buoyed by easing inflation and positive economic data, investors are increasingly optimistic about the potential for small-cap stocks. With central banks like the Federal Reserve and Bank of Canada poised to adjust interest rates, this could create a favorable environment for well-positioned companies with strong fundamentals. In this context, identifying hidden gems in Canada's small-cap sector becomes crucial for capitalizing on these market dynamics.

Top 10 Undiscovered Gems With Strong Fundamentals In Canada

Name	Debt To Equity	Revenue Growth	Earnings Growth	Health Rating
TWC Enterprises	6.74%	10.99%	25.68%	★★★★★★
Taiga Building Products	NA	6.05%	10.50%	★★★★★★
Tenaz Energy	NA	33.64%	50.62%	★★★★★☆
Reconnaissance Energy Africa	NA	31.73%	-6.92%	★★★★★☆
Firan Technology Group	17.91%	3.75%	23.32%	★★★★★☆
Mako Mining	22.90%	38.12%	54.79%	★★★★★☆
Firm Capital Mortgage Investment	57.73%	9.38%	5.91%	★★★★☆☆
Pizza Pizza Royalty	15.66%	3.64%	3.95%	★★★★☆☆
Queen's Road Capital Investment	7.20%	22.14%	22.20%	★★★★☆☆
Genesis Land Development	53.32%	25.58%	47.05%	★★★★☆☆

Click here to see the full list of 44 stocks from our TSX Undiscovered Gems With Strong Fundamentals screener.

Let's dive into some prime choices out of from the screener.

Leon's Furniture (TSX:LNF)

Simply Wall St Value Rating: ★★★★★★

Overview: Leon's Furniture Limited, with a market cap of CA$1.87 billion, operates as a retailer of home furnishings, mattresses, appliances, and electronics in Canada.

Operations: Leon's Furniture Limited generates CA$2.53 billion in revenue from the sale of home furnishings, mattresses, appliances, and electronics in Canada.

Leon's Furniture, a lesser-known Canadian retailer, is trading at 62.5% below its estimated fair value and has reduced its debt to equity ratio from 20.4% to 10.4% in five years. The company reported Q2 sales of CAD 617.66 million and net income of CAD 30.17 million, up from CAD 593.84 million and CAD 27.42 million respectively a year ago. Leon's also increased its quarterly dividend by $0.02 to $0.20 per share, reflecting confidence in future earnings growth forecasted at 3.66% annually.

• Navigate through the intricacies of Leon's Furniture with our comprehensive health report here.

• Examine Leon's Furniture's past performance report to understand how it has performed in the past.

Silvercorp Metals (TSX:SVM)

Simply Wall St Value Rating: ★★★★★★

Overview: Silvercorp Metals Inc., with a market cap of CA$1.07 billion, is involved in the acquisition, exploration, development, and mining of mineral properties through its subsidiaries.

Operations: Silvercorp Metals generates revenue primarily from its mining operations in Guangdong ($27.35 million) and Henan Luoning ($200 million).

Silvercorp Metals, a notable player in the mining sector, has seen its earnings grow by 149.4% over the past year, outpacing the industry average of 10.4%. The company reported first-quarter sales of $72.17 million and net income of $21.94 million, significantly higher than last year's figures. Despite some recent shareholder dilution and insider selling, Silvercorp remains debt-free with high-quality earnings and positive free cash flow at $37.89 million as of June 30, 2024.

• Take a closer look at Silvercorp Metals' potential here in our health report.

• Gain insights into Silvercorp Metals' past trends and performance with our Past report.

TerraVest Industries (TSX:TVK)

Simply Wall St Value Rating: ★★★★★☆

Overview: TerraVest Industries Inc. manufactures and sells goods and services to energy, agriculture, mining, transportation, and other markets in Canada and the United States with a market cap of CA$1.84 billion.

Operations: TerraVest Industries generates revenue primarily from its HVAC and Containment Equipment (CA$292.90 million), Compressed Gas Equipment (CA$243.77 million), Service (CA$201.78 million), and Processing Equipment (CA$117.58 million) segments. The Corporate segment incurs a minor negative revenue of CA$0.93 million.

TerraVest Industries has shown impressive earnings growth of 43.6% over the past year, significantly outpacing the Energy Services industry's -4.7%. The company’s debt to equity ratio improved from 117.9% to 49.4% over five years, and its interest payments are well covered by EBIT at five times coverage. Recent earnings reports reveal Q3 revenue of CAD 238 million and net income of CAD 11.92 million, with diluted EPS rising from CAD 0.44 to CAD 0.61 year-over-year.

• Dive into the specifics of TerraVest Industries here with our thorough health report.

• Assess TerraVest Industries' past performance with our detailed historical performance reports.

Where To Now?

• Dive into all 44 of the TSX Undiscovered Gems With Strong Fundamentals we have identified here.
• Are any of these part of your asset mix? Tap into the analytical power of Simply Wall St's portfolio to get a 360-degree view on how they're shaping up.
• Take control of your financial future using Simply Wall St, offering free, in-depth knowledge of international markets to every investor.

Looking For Alternative Opportunities?

• Explore high-performing small cap companies that haven't yet garnered significant analyst attention.
• Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management.
• Find companies with promising cash flow potential yet trading below their fair value.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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